Government Motors: The GM Bankruptcy

There are still giants which are simply too big for bankruptcy. As has been expected for months, General Motors, once the world’s largest automobile manufacturer and America’s largest employer, has finally filed for bankruptcy.

After a resolution in line with the usual principles of private employers and free enterprise, there was nothing else for it to do. GM has been hanging onto a financial lifeline from the government for a long time. Corporate restructuring is no longer a management issue for GM anymore, but rather a question to be decided almost exclusively by the federal government. Even before this past Monday, GM had been derisively called “Government Motors” in the United States.

The restructuring will now take place as a political drama. This will create substantial additional risks not only for the entire U.S. economy, but also for international competitors committed to doing business in the American automobile market.

For starters, the reorganization of GM will be a very expensive proposition for American taxpayers, since $50 billion could end up vanishing into a black hole. Even more difficult than this never ending financial burden is that consistent managerial control of the company will be completely impossible.

It is now clear that there will soon be talk of job cuts and unavoidable plant closings just as there were when military bases were going to be closed. Local politics count at least as much as do productivity numbers.

More worrisome is that the government will lose interest in fair and open competition because it will become one of the most important vendors in the automobile market. The idea that American manufacturers should build small fuel-efficient vehicles themselves, domestically, rather than importing them has to be alarming.

This gets downright absurd because politics start interfering with product development. There has been a consensus in Washington for a long time that America needs more economical automobiles. But no one is willing to muster up the courage to raise gasoline taxes, which is an effective market solution and the easiest thing to do. Instead of doing something like this, they will tweak regulations to force more efficiency. There is much more going on than just this. GM now has to get its new business model approved soon by federal government bankers.